Journal of Shipping and Ocean Engineering 7 (2017) 65-73 doi 10.17265/2159-5879/2017.02.003 D DAVID PUBLISHING

Risk of North Pole Route on Canal Revenue

Capt. Ahmed Dawood1 and Capt. Ahmed Sharabia2 1. Lecturer of Navigation in the Department of Nautical Studies, Arab Academy for Science, Technology and Maritime Transportation, Alexandria 21937, 2. Lecturer of Seaman Ship and Marine Safety in Sea Training Institute, Arab Academy for Science, Technology and Maritime Transportation, Alexandria 21937, Egypt

Abstract: The inauguration of the North Pole route as an alternate route for transporting cargoes between the Far East and Europe appears to be extremely acceptable by shipping companies owing to the huge saving in fuel consumption, bunker cost, operating cost, emissions and journey time. This route conversion will not only have an impact on the maritime business activity in the , but also the Egyptian economy in several aspects when the number of vessels passing through the Suez Canal and the Indian Ocean decreases. The aim of this study is to analyze the impact of the opening of the Northern Sea route on maritime sector of the Egyptian economy. The scope of this study is concentrating on the Suez Canal shipping activity by using the statistics that have been received from through a set of direct and indirect interview sessions with authority’s experts.

Key words: Suez, pole, cargo, arctic, revenue.

1. Introduction are the largest container ports in Egypt. The port authority is considered the Egypt’s geographical location is a vital aspect to the highest ports authority in Egypt according to the maritime transport sector. Overlooking both the Red number of traded containers in the Egyptian ports, as it and the Mediterranean seas which are connected by the is used in the trading of 59.3% of the total traded Suez Canal, Egypt recognized its role at the containers in the Egyptian ports in 2011. The port is international level. The government developed the used as a hub for shipping transit regions which is used infra structure of the maritime industry by constructing in container handling, while the plays an ports and providing them with high-tech equipments to important role in both the cargo handling operations deal with passengers and cargoes [1]. and the pass of ships through the Suez Canal [2]. Egyptian ports have witnessed a slight development. The Egyptian government has focused on the Egypt has many maritime facilities on both coasts of development of ports and raising its standards to occupy the Red and the Mediterranean seas. larger ships comparing to those which pass through Egypt has 15 commercial ports, 51 specialized ports them, and to increase their capacity to be used in larger (6 specializing in tourism, 15 specializing in oil, 9 extent of trade. In 2011, the number of containers specialized in mining, 21 specialized in fishing and 17 handled in Egyptian ports reached 6.6 million berths), six ports overlooking the containers compared to 6.2 million containers of the and other nine overlooking the . The four main same type in 2009 while providing storage services, ports include: the multi-purpose Alexandria port which cargo handling, customs clearance and other import is considered as the largest port in Egypt, the Suez port and export services. Dry ports provide an additional which is used in the transfer of 60% of the country’s means to bridge the gap between the expected capacity foreign trade. The East Port Said and Damietta ports of the port and the expected demand as a result of the

Corresponding author: Captain Ahmed Dawood, master, expected increase that reaches up to 4.8% of the size of research field: maritime safety and security.

66 Risk of North Pole Route on Suez Canal Revenue imports and exports over the next twenty years. The six following procedures: dry ports which are strategically located in Egypt (a) Literature review for previous study and previous (which will be accessible via only one land road to information including : offer an easy access across all land roads and railways)  Importance of Suez Canal. require a range of improvements in the services offered  North Pole route. to become an integrated logistics center used to carry (b) Meta-analysis for the rate of vessels passing out effective trading operations at a lower cost [2]. through Suez Canal. Maritime and related logistical services play a vital (c) Presenting suggestions to counter the threats of role of foremost significance in the Egyptian economy North Pole route on Suez Canal. with, on average, Egyptian ports handling nearly 65% 4. Literature Review of the country’s exports. Maritime services and relative logistics are essential to a massive number of sectors in The researcher has studied the available sources the economy because of their link to both exports and about the Suez Canal and the North Pole route which imports. Improving the efficiency of maritime has been discussed as follows: transport and related logistics can have significantly 4.1 Importance of Suez Canal positive spillover effects on encouraging private investments, trade flows, and subsequently enhancing It is historically registered in 1874 B.C. that Egypt production and job creation in almost every sector in was the leading country to dig a man-made channel the economy, reducing costs of imports for producers over its territory to connect the Mediterranean Sea to and consumers, and increasing government revenue the Red Sea through the Nile River and its branches. from port services [3]. That channel was deserted and reopened various times The objective of this study is to declare the risk of then later named “The Suez Canal”. It was opened for opening of the North Pole route on the Suez Canal and international navigation on the 17th of November 1869 how it decreases the Suez Canal revenue which directly A.D. [1]. affects the Egyptian economy. Then, this study will The Suez Canal is considered the briefest connection discuss the methods of overcoming this risk. between the west and the east owing to its unique geographic position; it is an essential international 2. Research Problem navigation channel connecting the Mediterranean Sea Due to the importance of the Suez Canal on the at Port Said and the Red Sea at Suez. The unique Egyptian economy, it will be threatened by the opening geographical location of the Suez Canal makes it of of the North pole route in the future. Therefore, this distinguished significance to the world and to Egypt as paper introduces some proposed solutions to counter well. these threats. This significance is increasing with the development of maritime transport and world trade. The maritime 2.1 Research Questions transport is the least expensive means of transport, (a) What is the current situation for Suez Canal? while more than 80% of the world trade volume is (b) What is the expected impact of the opening of transported through waterways (seaborne trade). Saving North pole route on Suez Canal? in range, time and in operating expenses for ships that cross the canal solidify this significance as well [4]. 3. Research Methodology 4.1.1 Advantages of the Suez Canal This research is descriptive research and using the  It is the longest channel in the world without locks

Risk of North Pole Route on Suez Canal Revenue 67 as shown in Fig. 1. international transportation networks, particularly with  The incidents are nearly nil compared with other a tendency to recede ice around the North Pole. In case waterways. that this tendency proceeds, parts of the Arctic could be  Navigation goes all day and night. utilized more dependably on navigation, at least  The channel is subjected to be expanded and through summer months and for longer periods of time deepened when required, to adapt to the advancements as shown in Fig. 2. The major trans-arctic courses in vessel sizes and tonnages. involve the North Pole route and the Northway  With the adoption of the VTMS (Vessel Traffic Passway. The Northern Sea route along the arctic coast Management System) (a system relying on the most of Russia is the maritime route that is probably going to up-to-date radar network), vessels can be observed and be free of ice and would decrease the maritime journey kept track on each spot of the channel and interference between East Asia and Western Europe from 21,000 in emergency situations can be taken. km utilizing the Suez Canal to 12,800 km, cutting passing time by 10-15 days and the northwest passage 4.2 North Pole Route crossing Canada’s Arctic Ocean could be applicable Global climate change is presenting new chances for on a constant basis by 2020, extraordinarily decreasing

Fig. 1 Importance of Suez Canal [4].

Fig. 2 North pole route [5].

68 Risk of North Pole Route on Suez Canal Revenue

maritime shipping distances. The maritime journey situation manifests that the effective trade movement is between East Asia and Western Europe would take between Europe and Far East and Far East to Pacific around 13,600 km utilizing the Northwest Passage, [8]. whilst taking 24,000 km utilizing the Panama Canal 5. Analysis and Substantiation [5]. According to HalvorSchoyen and SveinBrathen, 5.1 Opening of North Pole Route 2010, studies about advantages achieved through The North Pole route came to light because of the energy efficiency enhancements owing to a shorter climate change as several researchers conclude that course (the North Pole route) may substitute the rising temperatures are causing ice to melt in the disadvantages brought about by uncertainty connected northern hemisphere. When the various effects of to both the NSR and the course through the Suez Canal. climate and weather variability and change are The distinction in navigational distance from North introduced into computer models that project West Europe (London) to Far East (Yokohama) is atmospheric temperature patterns, the results clearly 4,200 nm, which for 15 knots constant speed equals to show that the average temperature in the Arctic region a distinction in time at sea of around 12 days, all other factors being correspondent for the two courses [6]. could rise by 3-9 °C over the next hundred years, which As per the Congressional Research Service report, is double the increase expected in other parts of the China runs a trade overflow the world’s three main world during the same period. Warming would cause economic centers: (1) The United States, (2) The an enormous quantity of ice to melt and it is believed European Union, and (3) Japan. Since 2000, the United that ice could disappear altogether from large areas of States has undertaken its biggest bilateral trade the ocean during the summer months in the coming deficiency with China ($201 billion in 2005, a 25% rise decades as shown in Fig. 3. Extensive melting has over 2004). In 2003, China supplanted Mexico as the already begun, especially in areas of thick perennial ice. second biggest source of imports for the United States. Computer models show that the surface area of ice at China’s share of U.S. imports was 14.6% in 2005, in the end of summer could contract by 15% to 40% by spite the fact that this ratio still fails to reach the level the year 2050, accompanied by reductions in average of Japan’s 18% of the early 1990s. The United States is thickness of up to 30% in the same period. Indications China’s biggest overseas market and second biggest are that the Arctic Ocean could be relatively free of ice source of foreign direct investment on accumulative towards the end of the century. Ice will still form basis. U.S. exports to China have been developing during wintertime but it will be a comparatively thin quickly as well, though from a low base [7]. In 2004, layer and ice-breakers will be able to force a passage China supplanted Germany and the United Kingdom to through it. Ocean currents will probably cause the ice turn into the fourth biggest market for U.S. to drift away from eastern regions of the Arctic Ocean, commodities and continues to be the quickest which would ease sailing conditions [9]. developing U.S. major export market. China is 5.2 Drop of Suez Canal Revenue purchasing vigorously from its Asian trading partners especially in precise machinery, electronic The Suez Canal suffered from a huge decrease in its composition sand raw materials for industrialization. revenue in the last decade due to the following causes: China is running trade deficiencies with Taiwan and  The collapse of the world trade. South Korea and has turned into a main buyer of  Passing some of ships through the Cape of Good merchandise from Japan and Southeast Asia. This Hope.

Risk of North Pole Route on Suez Canal Revenue 69

Fig. 3 Arctic ice meltdown in summer 2016 [10].

 Opening of the North Pole route. companies’ profit margin will dramatically increase Firstly, due to the declining of the world trade, the without any argument. number of ships passing through the Suez Canal has 5.3 Statistics for Suez Canal decreased which affected the Suez Canal’s revenue. Secondly, some of ships headed to pass through the From the previous reasons, it can be noticed that the Cape of Good Hope, despite of its long path comparing most important reason which affected the Suez Canal with the Suez Canal route but its cost is less than the revenue and will play a dramatic role in decreasing the cost of passing through the Suez Canal route for long Suez Canal revenue in the future is the opening of the distance travel ships. Thirdly, shipping lanes through North Pole route. The following statistics prove that the the Arctic Ocean will put the Suez Canal out of number of vessels and the total cargo weight in Suez business soon, as global warming will make these Canal already decreased through the last few years frigid routes much more accessible than ever imagined especially in the summer months which are from June by melting an unprecedented amount of sea ice during to October. the late summer. 5.3.1 Number of Vessels Passing through Suez Fig. 4 shows the comparison between two maritime Canal routes for transporting cargoes from the Far East to The following Fig. 5 shows the total number of Europe. The shortest route to travel from China to vessels passing through the Suez Canal in both Rotterdam is by using the North Pole route which can directions (South/North-North/South) from June to save up to 13 days. The philosophy applied in the October in 2015 and 2016. shipping industry is that the reduction in route distance It is clear that the total number of vessels passing will automatically reduce the total travel time, through the Suez Canal in summer months decreased in ultimately reducing the total fuel consumption, bunker 2016 comparing with the same months in 2015. This is fuel cost and vessel operating cost respectively. an expected statistic as the number of vessels passing Consequently, the amount of emissions produced by through the North Pole route increases gradually ships will definitely be reduced. Finally, the shipping through the last few years since the opening of this route.

70 Risk of North Pole Route on Suez Canal Revenue

Fig. 4 China’s New Shipping Frontier [11].

1650 1600 1550 1500 Vessels 1450 of 1400 1350 1300 Number 1250 1200 June July Aug Sep Oct 2015 1485 1458 1585 1515 1500 2016 1350 1420 1462 1406 1440

Fig. 5 Number of vessels passing through Suez Canal. Source: Authors derived from various sources.

5.3.2 Total Cargo for the Vessels that Passed through months is declined in 2016 when it is compared with Suez Canal 2015 due to the decreasing of the number of vessels Fig. 6 illustrates the total cargo for the vessels that passing through the Suez Canal in that time. Thus, the passed through Suez Canal in both directions North Pole route plays a huge role in decreasing the (South/North-North/South) from June to October in number of vessels and the total cargo which directly 2015 and 2016. affects the Suez Canal revenue. One can see in Fig. 6 that the total cargo for vessels 5.3.3 Total Cargo from Far East that passed through the Suez Canal in the summer By increasing of international trade between the Far

Risk of North Pole Route on Suez Canal Revenue 71

90,000 88,000 86,000 Tons 84,000 of

82,000 80,000 78,000 Thousands 76,000 74,000 June July Aug Sep Oct 2015 82,834 85,514 89,053 86,619 85,073 2016 80,031 84,740 87,845 81,732 81,959

Fig. 6 Total cargo for the vessels that passed through Suez Canal. Source: Authors derived from various sources.

100,000 90,000 80,000

Tons 70,000

of

60,000 50,000 40,000 30,000 Thousands 20,000 10,000 0 2012 2013 2014 2015 2016 1000 Tonnes 86,041 77,085 76,637 75,483 64,921

Fig. 7 Cargo related to Far East. Source: Authors derived from various sources.

East and Europe, the shipping companies began to One can notice in Fig. 7 that the number of cargo for sail through the North Pole route due to the great vessels related to the Far East declined gradually from saving in fuel consumption, bunker cost, operating cost, about 86 to 64 million tons within 5 years. This emissions and journey time. Thus, these companies decrease indicates to heading some of shipping went away from the Suez Canal which has a dramatic companies to sail through the North Pole route and effect on the Suez Canal revenue. avoiding the Suez Canal route to increase their profit. Fig. 7 shows the total cargo for vessels passing By contrast, the revenue of the Suez Canal had a through the Suez Canal which have Far East in their dramatic reduction due to the avoiding of shipping origin or destination from 2012 to 2016. companies to the Suez Canal route.

72 Risk of North Pole Route on Suez Canal Revenue

By 2050, Laurence C. Smith and Scott R. while retaining a share of them with the Authority, Stephenson at the University of California, say that reconsidering the admission of foreigners to the common vessels ought to have the ability to travel Egyptian maritime market and giving privileges where, effectively along the northern sea course and at least, foreigners and Egyptians are treated evenly reasonably ice-reinforced vessels ought to be able to when investing in maritime transport as well. take the briefest convincible course between the Pacific  The possibility of benefiting from the potentials and Atlantic Oceans, crossing over the pole itself. The and the contributions of departments and companies of easiest time would be in September, when annual sea the Suez Canal Authority, maximizing their revenues ice cover in the Arctic Ocean is at its lowest range [12]. and the possibility of renovating the industry of shipbuilding and repairing in the region as well as its 6. Conclusions subsidiary industries, besides establishing One can conclude from this research and the well-managed companies for all ships’ supplies. illustrated figures that the opening of North Pole route  Taking advantage of Suez Canal region through has threaten the Suez Canal future as it began to affect the establishment of projects with added value for the revenue of Suez Canal. Nowadays, the shipping maritime transport industry. These projects serve the companies sail their ships through the North Pole route vessels passing the Canal which need temporary in the summer months only. In the near future, by the maintenance in addition to founding logistics centers effect of global warming the ships will be able to sail in and P&O Clubs to offer service for vessels which may the North Pole route throughout the year which means be exposed to accidents while crossing the waterway. It that the Suez Canal will be out of business. is possible to establish places for maintenance agents and spare parts for maritime transport, centers to 7. Suggestions employ sailors as some passing ships need sailors Our suggestion to counter these threats of North Pole during their journey, emergency hospitals as well as route is that there must be a comprehensive change in medical evacuation systems for ships in transit. the Suez Canal policy and reconsidering the applied  Finally, establishing a large maintenance center in pricing policy in accordance with the international the cities covered by Suez Canal region and arsenals markets and the expected changes in maritime for building and repairing ships. However, this will not transport routes. have an economic payoff unless existing ports are  The necessity to link the Suez Canal Authority given attention, raised their capacity and converted into with maritime transport sector, where it is a part that hub ports as well as establishing projects within the cannot be separated from the sector. Furthermore, port. when dealing with both the Suez Canal and the References Egyptian ports only one entity should be addressed.  Suez Canal Authority should be concerned with, [1] Alexandria Crewing Agency. 2013. Available online at http://www.acaegypt.com/en/egypt-a-its-maritime-industr re-evaluate and re-structure its affiliated companies to y. maximize the benefit from them. One of these affiliated [2] Industrial Development Authority. 2014. Available online companies is the arsenals which belong to it. These at arsenals can be organized and restructured then put in http://www.ida.gov.eg/Arabic/Why_Egypt/Pages/infrastr ucture-and-logistics.aspx. the stock market to reap huge profits from these [3] Ghoneim, A F. 2007. “Maritime Transport and Related companies. It is necessary for the companies, which are Logistics Services in Egypt.” Switzerland: International affiliated to the Suez Canal Authority, to be privatized Centre for Trade and Sustainable Development.

Risk of North Pole Route on Suez Canal Revenue 73

[4] Suez Canal Authority. 2013. Suez Canal Service, Dynamic in the Arctic Region. United States of America: Available online at The Institute For Foreign Policy Analysis. http://www.suezcanal.gov.eg/sc.aspx?show=10. [9] Report of a working group. 2006. “North Meets North [5] Claes, L. R. 2008. The Northern Sea Route. Sweden, Navigation and the Future of the Arctic.” The Ministry for Norden Association’s Yearbook for 2008. Foreign Affairs, Iceland. [6] Rahman, N. S. F. A. 2014. “Effect of the Northern Sea [10] Climate Central. 2016. Available Online At Route Opening to the Shipping Activities at Malacca http://www.climatecentral.org/gallery/maps/2016s-arctic- Straits.” International Journal of e-Navigation and sea-ice-melt-season-in-8-seconds. Maritime Economy 1: 85-98. [11] Northern Sea Route Information Office, National Snow [7] Backhouse, R. E., and Medema, S. 2008. “Definition of and Ice Data Center, 2013. Economic.” The New Palgrave Dictionary of Economics 2: [12] The Guardian. 2013. Available online at 20-2. https://www.theguardian.com/environment/2013/mar/04/ [8] Perry, C. M., and Anderson, B. 2012. New Strategic ships-sail-north-pole-2050.